<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD ENDED FROM __________ TO __________
COMMISSION FILE NUMBER 1-12380
----------
AVIALL, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 65-0433083
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2075 DIPLOMAT DRIVE
DALLAS, TEXAS 75234-8999
(Address of principal executive offices) (Zip Code)
(972) 406-2000
(Registrant's telephone number, including area code)
Indicate by check |X| whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of Common Stock, par value $.01 per share, outstanding
at August 5, 1998 was 19,057,992.
================================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
AVIALL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------- --------------------------
1998 1997 1998 1997
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 104,949 96,063 202,979 187,745
Cost of sales 78,970 71,830 151,960 140,468
----------- ---------- ---------- ----------
Gross profit 25,979 24,233 51,019 47,277
Operating and other expenses:
Selling and administrative expenses 17,481 16,827 34,668 33,018
Nonrecurring item -- -- -- (1,436)
Interest expense 576 991 1,083 1,725
----------- ---------- ---------- ----------
Earnings from continuing operations before income taxes 7,922 6,415 15,268 13,970
Provision for income taxes 94 288 461 900
----------- ---------- ---------- ----------
Earnings from continuing operations 7,828 6,127 14,807 13,070
Discontinued operations:
Gain on disposal 2,083 -- 2,083 --
----------- ---------- ---------- ----------
Earnings from discontinued operations 2,083 -- 2,083 --
----------- ---------- ---------- ----------
Net earnings $ 9,911 6,127 16,890 13,070
=========== ========== ========== ==========
Basic net earnings per share:
Earnings from continuing operations $ 0.40 0.31 0.75 0.67
Earnings from discontinued operations 0.10 -- 0.10 --
----------- ---------- ---------- ----------
Net earnings $ 0.50 0.31 0.85 0.67
=========== ========== ========== ==========
Weighted average common shares 19,727,636 19,629,361 19,847,404 19,603,104
=========== ========== ========== ==========
Diluted net earnings per share:
Earnings from continuing operations $ 0.39 0.31 0.73 0.66
Earnings from discontinued operations 0.10 -- 0.10 --
----------- ---------- ---------- ----------
Net earnings $ 0.49 0.31 0.83 0.66
=========== ========== ========== ==========
Weighted average common and potentially dilutive
common shares 20,119,859 19,955,833 20,253,439 19,835,382
=========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
AVIALL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- -------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash $ 2,089 7,556
Receivables 64,095 59,119
Inventories 80,848 73,414
Prepaid expenses and other current assets 1,548 1,627
Deferred income taxes 11,795 11,795
-------- -------
Total current assets 160,375 153,511
-------- -------
Property, plant and equipment 10,328 9,758
Intangible assets 54,027 55,134
Deferred income taxes 37,506 37,530
Other assets 3,463 3,459
-------- -------
Total assets $265,699 259,392
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 11,320 8,556
Accounts payable 37,067 27,765
Accrued expenses 34,321 40,309
-------- -------
Total current liabilities 82,708 76,630
-------- -------
Long-term debt 24,000 28,004
Other liabilities 26,369 27,397
Shareholders' equity (includes common stock of $.01 par value per share with
80,000,000 shares authorized; 20,153,492 shares and 19,900,195 shares issued
at June 30, 1998 and at December 31, 1997, respectively; 19,125,592 shares
and 19,900,195 shares outstanding at June 30, 1998 and at December 31, 1997,
respectively; preferred stock of $.01 par value per share with 10,000,000
shares authorized and no shares issued and outstanding) 132,622 127,361
-------- -------
Total liabilities and shareholders' equity $265,699 259,392
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
AVIALL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1998 1997
-------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 16,890 13,070
Gain on disposal of discontinued operations (2,083) --
Nonrecurring item -- (1,436)
Depreciation and amortization 2,808 2,735
Compensation expense on restricted stock awards 115 --
Deferred income taxes 8 12
Changes in:
Receivables (4,398) (5,085)
Inventories (7,390) (2,024)
Accounts payable 9,302 2,697
Accrued expenses (4,527) (7,456)
Other, net (1,021) (233)
-------- ------
9,704 2,280
-------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds received from repayment of note receivable -- 12,000
Capital expenditures (2,104) (1,094)
Sales of property, plant and equipment (83) 96
-------- ------
(2,187) 11,002
-------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt repaid (4,549) (12,510)
Net change in revolving credit facility 3,309 (2,069)
Issuance of common stock 3,078 1,105
Purchase of treasury stock (14,822) --
-------- ------
(12,984) (13,474)
-------- ------
Change in cash (5,467) (192)
Cash, beginning of period 7,556 4,191
-------- ------
Cash, end of period $ 2,089 3,999
======== ======
CASH PAID FOR INTEREST AND INCOME TAXES:
Interest $ 1,138 2,274
Income taxes $ 633 991
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
AVIALL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, these financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included. Operating results for the three- and
six-month periods ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. For further
information, refer to the financial statements and footnotes thereto included in
Aviall, Inc.'s Form 10-K for the year ended December 31, 1997.
NOTE 2 - GAIN ON DISCONTINUED OPERATIONS
A gain from discontinued operations recorded in the second quarter of 1998
resulted from a change in estimate for retained obligations.
5
<PAGE> 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW. The following discussion and analysis should be read in conjunction
with the information set forth under Item 7: Management's Discussion and
Analysis of Financial Condition and Results of Operations on pages 13 through 19
of Aviall, Inc.'s (the "Company") Form 10-K for the year ended December 31,
1997.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1997. Net sales for the second quarter of 1998 were $104.9
million, up $8.9 million, or 9.3%, from the $96.1 million recorded in the same
1997 quarter. Sales growth was strong in the United States, with the largest
percentage gains in the Latin America, Australia and European markets. A large
government contract sale in Asia offset a decrease in that market's base
business.
Gross profit of $26.0 million was $1.7 million higher than the $24.2
million in the 1997 second quarter. Gross profit as a percentage of sales
decreased from 25.2% to 24.8%. This decrease in gross profit percentage was
primarily a result of the lower margin on the government contract sale in Asia.
Selling and administrative expenses increased $0.7 million, or 3.9%, to
$17.5 million in the second quarter of 1998. The increase primarily resulted
from increased salary, benefits and sales commissions.
Interest expense was lower than in the second quarter of 1997, reflecting
lower borrowings and lower interest rates. Tax expense decreased due to a
revised estimated tax rate of 3% for the year, resulting from lower full year
profit projections for the foreign entities.
A gain in discontinued operations resulted from revised estimates for
retained liabilities, primarily product liability insurance.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1997. Net sales for the first half of 1998 were $203.0 million,
up $15.2 million, or 8.1%, from the $187.7 million recorded in the same half of
1997. Sales continued to grow in all major business segments and geographic
regions, although a large government contract in Asia offset a decrease in the
region's base business.
Gross profit of $51.0 million in the first six months increased $3.7
million, or 7.9%, from the $47.3 million in the first half of 1997. Gross profit
as a percentage of sales decreased slightly from 25.2% to 25.1%.
Selling and administrative expenses increased $1.7 million, or 5.0%, to
$34.7 million in the first two quarters of 1998. The increase primarily resulted
from increased salary, benefits and sales commissions.
Interest expense was lower than in the first half of 1997, reflecting lower
borrowings, lower interest rates and higher interest income from the larger
average cash balance.
The 1997 results include a $1.4 million nonrecurring gain from the full
repayment in January 1997 of a discounted note received in connection with the
1995 sale of the business aviation engine overhaul, and aircraft and terminal
services operations. The 1998 discontinued operations gain is discussed above.
FINANCIAL CONDITION. Cash flows from operations were $9.7 million in the first
six months of 1998 and $2.3 million in the comparable 1997 period. The improved
cash flow in 1998 was mostly due to the higher net earnings, higher accounts
payable primarily due to increased inventory purchases and lower payments
related to the retained liabilities for previously owned businesses.
Capital expenditures in the first half of 1998 were primarily related to
implementation of the new financial and operating system software and related
computer hardware.
In January 1998, the Company's Board of Directors authorized a $30 million
share repurchase program to buyback up to 10% of the Company's outstanding
common stock over the next two years in open market transactions, depending on
market, economic and other factors. The Company presently intends to use
existing cash balances and future cash flows to fund this program; however, the
Company may also use borrowings under its existing credit facility to make
purchases. Through the second quarter of 1998, the Company has purchased an
aggregate of 1,027,900 shares for a total cost of $14.8 million under this
program. Management does not expect the share repurchase program to restrict the
Company from pursuing other opportunities for growth.
In January 1997, a $12.0 million unsecured subordinated note received in
connection with the 1995 sale of the business aviation engine repair operation
was repaid. The Company applied the proceeds as a permanent reduction of the
term loan under the 1996 bank agreement. Because of the uncertainty regarding
the collection of the note when it was received in March 1995, the Company
carried the note at a discounted value of $10.5 million.
6
<PAGE> 7
The Company's income tax expense continues to be substantially lower than
the U.S. federal statutory rate due to the utilization of the large U.S. net
operating loss ("NOL") and the corresponding decrease in the valuation allowance
on the deferred tax assets. The Company's tax expense is primarily related to
foreign taxes on foreign operations and U.S. federal alternative minimum tax.
For U.S. federal tax purposes as of December 31, 1997, the Company had an
estimated NOL carryforward of approximately $200 million, substantially expiring
in 2009-2011 which is expected to minimize U.S. federal income tax cash payments
for several years. If certain substantial changes in the Company's ownership
should occur, there would be an annual limitation on the amount of the NOL
carryforward that could be utilized.
The Company believes that its expected cash flow from operations and
availability under its revolving lines of credit are sufficient to meet its
current working capital and operating needs. Improvements in earnings should
further enhance the Company's access to capital and enable the Company to
finance possible future investment opportunities.
OUTLOOK. As previously reported, the Company is replacing its financial and
parts distribution applications software. The replacement of the financial
systems software was implemented on schedule during second quarter. The parts
distribution software replacement is scheduled for implementation early in 1999.
Estimated training expenses in the fourth quarter 1998 are expected to be up to
$1 million.
The Company's financial and parts distribution systems are critical to
Aviall's success. Implementation of complex new software systems carries certain
risks that may affect normal operations. Sales in the fourth quarter of 1998 and
first quarter of 1999 may be negatively impacted due to training and early
system utilization. Management believes their implementation process and
strategy combined with appropriate training throughout the organization will
minimize these risks.
The new financial and parts distribution systems are Year 2000 compliant. A
year 2000 hardware and system software review was conducted by an outside
consultant during first half of 1998. Recommendations resulting from the review
will be implemented by year-end 1998. Based on the implementation and assessment
dates, management believes implementation will be completed in a timely manner
and there will be no material effect from Year 2000 on its future financial
results.
Aviall primarily participates in the global aviation aftermarket through
its core aviation parts distribution and inventory information services
businesses. The Company can be affected by the general economic cycle,
particularly as it influences flight activity in commercial, business and
general aviation. Current favorable economic conditions have led to an improved
aviation market, and provided the Company with the opportunity for growth.
The Company serves a significant number of customers in the Asian and Latin
America markets. Recent events, particularly in Asia, have resulted in decreased
economic activity and increased currency fluctuations relative to the U.S.
dollar. These factors have depressed air travel which impacts customers' need
for aircraft parts and potentially their ability to pay in a timely manner.
Without a large sale to a government customer in the second quarter of 1998,
sales in Asia would have fallen below the levels achieved in 1997. Management
expects business in Asia to remain soft for the balance of 1998. The Company
continues to closely monitor these events.
CERTAIN FORWARD-LOOKING STATEMENTS. This report contains certain forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995) relating to the Company that are based on the beliefs of the
management of the Company, as well as assumptions and estimates made by and
information currently available to the Company's management. When used in this
report, the words "anticipate," "believe," "estimate," "expect," "intend" and
similar expressions, as they relate to the Company or the Company's management,
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions relating to the operations and results of
operations of the Company as well as its customers and suppliers, including as a
result of competitive factors and pricing pressures, shifts in market demand,
general economic conditions and other factors including among others, those that
effect flight activity in commercial, business and general aviation, the
business activities of the Company's customers and suppliers and developments in
information and communication technology. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions or estimates prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended.
7
<PAGE> 8
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on May 22, 1998, at
which meeting the shareholders took action with respect to four proposals, (i)
the election of Robert G. Lambert and Donald R. Muzyka to serve as directors of
the Company for a term expiring at the Company's 2001 Annual Meeting of
Shareholders, (ii) the adoption of the Aviall, Inc. 1998 Stock Incentive Plan,
(iii) the approval of an amendment to the Aviall, Inc. Directors Stock Plan and
(iv) the ratification of the appointment of PricewaterhouseCoopers LLP to serve
as independent auditors for the Company and its subsidiaries for the fiscal year
ending December 31, 1998.
The number of votes cast for, against or withheld, as well as the number of
abstentions as to each proposal is set forth below. There were no broker
non-votes with respect to any of the proposals.
<TABLE>
<CAPTION>
Election of Directors
---------------------
Total Votes For Total Votes Withheld
--------------- --------------------
<S> <C> <C>
Robert G. Lambert 17,650,266 60,611
Donald R. Muzyka 17,652,665 58,212
</TABLE>
The other directors of the Company whose terms of office continued after
the meeting were Richard J. Schnieders, Bruce N. Whitman, Eric E. Anderson and
Henry A. McKinnell.
<TABLE>
<CAPTION>
Adoption of the Aviall, Inc. 1998 Stock Incentive Plan
------------------------------------------------------
For Against Abstain
--- ------- -------
<S> <C> <C>
14,577,482 2,492,935 640,460
Approval of Amendment to the Aviall, Inc. Directors Stock Plan
--------------------------------------------------------------
For Against Abstain
--- ------- -------
15,008,913 2,147,015 554,949
Ratification of Selection of Independent Auditors
-------------------------------------------------
For Against Abstain
--- ------- -------
17,683,660 14,551 12,666
</TABLE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Aviall, Inc. 1998 Directors Stock Plan
10.2 Aviall, Inc. 1998 Stock Incentive Plan
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
8
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVIALL, INC.
August 7, 1998 By /s/ Jacqueline K. Collier
------------------------------
Jacqueline K. Collier
Vice President and Controller
Principal Accounting Officer
August 7, 1998 /s/ Cornelius Van Den Handel
------------------------------
Cornelius Van Den Handel
Vice President and Treasurer
Principal Financial Officer
9
<PAGE> 10
INDEX TO EXHIBITS
Exhibit
Number Description
- --------- -----------
10.1 Aviall, Inc. 1998 Directors Stock Plan
10.2 Aviall, Inc. 1998 Stock Incentive Plan
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
AVIALL, INC.
1998 DIRECTORS STOCK PLAN
SECTION I
PURPOSES OF THE PLAN
The Aviall, Inc. 1998 Directors Stock Plan (the "Plan") is intended to
enable Aviall, Inc. (the "Company") to attract and retain persons of outstanding
competence to serve as members of the Board of Directors of the Company and to
provide a direct link between Directors' compensation and stockholder value.
SECTION II
ADMINISTRATION OF THE PLAN
A. Board -- The Plan shall be administered by the Board of Directors of
the Company or a duly authorized committee thereof (the Board of Directors of
the Company or any such committee being hereinafter referred to as the "Board").
Grants of stock and stock options to eligible participants under the Plan and
the amount, nature and timing of the grants shall be determined as set forth in
Sections IV, V and VI.
B. Authority of the Board -- Subject to the limitations and
restrictions set forth in the Plan, the Board shall have full and final
authority to interpret the Plan; to prescribe, amend and rescind rules and
regulations, if any, relating to the Plan; and to make all determinations
necessary or advisable for the administration of the Plan. No member of the
Board shall be liable for anything done or omitted to be done by him or by any
other member of the Board in connection with the Plan, except for his own
willful misconduct or gross negligence. All decisions which are made by the
Board with respect to interpretation of the terms of the Plan and with respect
to any questions or disputes arising under the Plan shall be final and binding
on the Company and the participants, their heirs or beneficiaries.
C. Acts of the Board -- A majority of the Board will constitute a
quorum and the acts of a majority of the members present at any meeting at which
a quorum is present, or acts approved in writing by all members of the Board
without a meeting, will be the acts of the Board.
SECTION III
STOCK SUBJECT TO THE PLAN
A. Common Stock -- The stock which is the subject of grants under the
Plan shall be the Company's Common Stock, par value $.01 per share ("Common
Stock"), which shares shall be subject to the terms, conditions and restrictions
described in the Plan.
B. Maximum Number of Shares That May Be Granted -- There may be granted
under the Plan an aggregate of not more than one hundred forty-seven thousand
five hundred (147,500) shares of Common Stock, subject to adjustment as provided
in Section IX hereof. Shares of Common Stock granted pursuant to the Plan may be
either authorized, but unissued, shares or reacquired shares, or both.
C. Rights With Respect To Shares -- A Director to whom a grant of
Common Stock has been made shall have absolute beneficial ownership of the
shares of Common Stock granted to that Director, including the right to vote the
shares and to receive dividends thereunder; subject, however, to the terms,
conditions
<PAGE> 2
and restrictions described in the Plan, including, but not limited to, under
Section V. The certificate(s) for such shares shall be held by the Company (or
by an agent designated by the Secretary of the Company) for the Director's
benefit until the terms, conditions and restrictions lapse, whereupon the
certificates shall be delivered to the Director.
SECTION IV
PARTICIPATION
A. Directors -- Participation in the Plan shall be limited to persons
who serve as members of the Board of Directors of the Company and who, at the
time of grant, are not "employees" of the Company and/or any of its
subsidiaries, within the meaning of the Employee Retirement Income Security Act
of 1974 ("ERISA") (an "Eligible Director"). A Director who is an employee and
who retires or resigns from employment with the Company and/or any of its
subsidiaries, but remains a Director of the Company, shall become eligible to
participate in the Plan at the time of such termination of employment.
B. Elections -- Any Eligible Director may elect to participate in the
Plan and receive grants of Common Stock as set out in Paragraph C of this
Section IV by delivering to the Committee a written notice to such effect. Any
such election shall remain in effect until revoked by the participating Director
by delivering to the Board a written notice to such effect. An election shall be
made at least six (6) months prior to the Grant Date (as defined below), and
according to procedures established by the Board.
C. Stock Grants -- Each participating Director who has made an election
to participate in the Plan pursuant to Paragraph B of this Section IV shall be
eligible to receive annually, on the first New York Stock Exchange trading day
in July of each calendar year (the "Grant Date"), following such election, in
lieu of such Director's annual retainer for service as a director of the Company
(the "Annual Retainer") a grant of Common Stock. The number of shares of Common
Stock that shall be granted to a participating Director will be the number of
whole shares which can be purchased for Thirty Thousand Dollars ($30,000.00)
(the "Share Value") based on the Fair Market Value of the shares on the Grant
Date. Fractional shares shall not be granted. For the purposes of this Plan,
"Fair Market Value" means of the highest and lowest sale price for the Common
Stock as reported on the New York Stock Exchange Composite Transaction Reporting
System on the Grant Date.
D. Adjustment of Share Value -- In the event that there shall be an
increase or decrease in the Annual Retainer, the Share Value shall adjust
automatically so that the ratio between the Annual Retainer and the Share Value
is maintained.
SECTION V
TERMS AND CONDITIONS OF STOCK GRANTS
A. Vesting -- Each grant of Common Stock to a participating Director in
accordance with Section IV shall be vested on the six-month anniversary of the
Grant Date, so long as the Director has served continuously as a director of the
Company during the intervening six-month period; provided, however, that a
participating Director who leaves the Board of Directors of the Company
following the completion of the term of service for which the Director was
elected prior to the end of such six-month period or whose service during such
six-month period was interrupted due to death or disability shall be vested in a
pro rata number of such shares. Except as described in the preceding sentence,
in the event a Director's service to the Company terminates before the shares
have vested, then all shares granted to such Director which have not vested
shall be canceled and such shares shall be forfeited and retransferred to the
Company, with the Director having no further right or interest in such forfeited
and retransferred shares.
B. Restrictions on Transfer -- Shares of Common Stock granted to a
participating Director pursuant to Section IV may not be assigned, transferred,
pledged, hypothecated or otherwise disposed of (i) before they have vested in
accordance with Paragraph A of this Section V and (ii) until six (6) months
after the termination of the Director's service to the Company as a director.
2
<PAGE> 3
SECTION VI
STOCK OPTION GRANTS
A. The Board may, from time to time and upon such terms and conditions
as it may determine, authorize the granting to an Eligible Director of rights to
purchase shares of Common Stock upon the exercise of an option granted pursuant
to this Section VI ("Option Rights"). Notwithstanding anything in this Section
VI or elsewhere in this Plan to the contrary and subject to adjustment as
provided in Section IX, no Director shall be granted Option Rights for more than
3,000 shares of Common Stock during any fiscal year of the Company.
B. Grants of Option Rights awarded pursuant to this Section VI may be
made on any Grant Date to any Eligible Director then serving on the Board and
shall be evidenced by an agreement in such form as shall be approved by the
Board. Each grant shall specify a purchase price per share payable on exercise
of an Option Right (the "Option Price"), which shall not be less than the Fair
Market Value per share of Common Stock on the Grant Date. Each such Option Right
granted under the Plan shall expire not more than 10 years from the Grant Date
and shall be subject to earlier termination as hereinafter provided. Unless
otherwise determined by the Board, such Option Rights shall be subject to the
following additional terms and conditions:
(i) Each grant shall specify the number of shares of Common Stock
to which it pertains subject to the limitation set forth in Paragraph A of this
Section VI.
(ii) Each such Option Right shall become exercisable in full on
such date or dates not less than six months nor more than five years from the
Grant Date, so long as the Director has served continuously as a director of the
Company during the intervening period, and shall become exercisable in full
immediately in the event of a Change in Control, as defined in Section VII.
(iii) In the event of the termination of service on the Board by
the holder of any such Option Rights other than by reason of disability or
death, the then outstanding Option Rights of such holder may be exercised to the
extent that they would be exercisable on the date that is six months and one day
after the date of such termination and shall expire six months and one day after
such termination, or on their stated expiration date, whichever occurs first.
(iv) In the event of the death or disability of the holder of any
such Option Rights, each of the then outstanding Option Rights of such holder
shall become exercisable in full and may be exercised at any time within one
year after such death or disability, but in no event after the expiration date
of the term of such Option Rights.
(v) If a Director subsequently becomes an employee of the Company
while remaining a member of the Board, any Option Rights held under the Plan by
such individual at the time of such commencement of employment shall not be
affected thereby.
(vi) Option Rights may be exercised by a Director only upon
payment to the Company in full of the Option Price of the shares of Common
Stock to be delivered. Such payment shall be made (a) in cash or by check
acceptable to the Company, (b) by the actual or constructive transfer to the
Company of shares of Common Stock then owned by the Director for at least six
months having a value at the time of exercise equal to the total Option Price,
or (c) by a combination of such methods of payment. In addition, any grant of
Option Rights may provide for deferred payment of the Option Price from the
proceeds of sale through a bank or broker on a date satisfactory to the Company
of some or all of the shares to which such exercise relates.
(vii) Successive grants may be made to the same Director whether
or not Option Rights previously granted to such Director remain unexercised.
3
<PAGE> 4
SECTION VII
CHANGE IN CONTROL
For purposes of this Plan, except as may be otherwise prescribed by the
Board in an agreement evidencing a grant or award made under the Plan, a "Change
in Control" shall mean if at any time any of the following events shall have
occurred:
(i) The Company is merged or consolidated or reorganized into or
with another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
securities entitled to vote generally in the election of Directors immediately
prior to such transaction;
(ii) The Company sells or otherwise transfers all or substantially
all of its assets to any other corporation or other legal person, and less than
a majority of the combined voting power of the then-outstanding securities of
such corporation or person immediately after such sale or transfer is held in
the aggregate by the holders of shares of Common Stock immediately prior to such
sale or transfer;
(iii) There is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, as such statute, rules and regulations may be amended from time to
time (the "Exchange Act"), disclosing that any person (as the term "person" is
used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of
securities representing 20% or more of the total votes relating to the
then-outstanding securities entitled to vote generally in the election of
Directors (the "Voting Power");
(iv) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form or report
or item therein) that a change in control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or
(v) If during any period of two consecutive years, individuals who
at the beginning of any such period constitute the Directors cease for any
reason to constitute at least a majority thereof, unless the election, or the
nomination for election by the Company's stockholders, of each Director first
elected during such period was approved by a vote of at least two-thirds of the
Directors then still in office who were Directors at the beginning of any such
period.
Notwithstanding the foregoing provisions of Paragraphs (iii) and (iv)
of this Section VII, a "Change in Control" shall not be deemed to have occurred
for purposes of this Plan (x) solely because (a) the Company; (b) a Subsidiary;
or (c) any Company-sponsored employee stock ownership plan or other employee
benefit plan of the Company either files or becomes obligated to file a report
or proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form
8-K or Schedule 14A (or any successor schedule, form or report or item therein)
under the Exchange Act, disclosing beneficial ownership by it of shares, whether
in excess of 20% of the Voting Power or otherwise, or because the Company
reports that a change of control of the Company has or may have occurred or will
or may occur in the future by reason of such beneficial ownership or (y) solely
because of a change in control of any Subsidiary. For purposes of this Section
VII, a "Subsidiary" means a corporation, company or other entity (i) more than
50 percent of whose outstanding shares or securities (representing the right to
vote generally in the election of directors or other managing authority) are, or
(ii) which does not have outstanding shares or securities (as may be the case in
a partnership, joint venture or unincorporated association), but more than 50
percent of whose ownership interest representing the right generally to make
decisions for such other entity is, now or hereafter, owned or controlled,
directly or indirectly, by the Company.
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SECTION VIII
COMPLIANCE WITH LAW AND OTHER CONDITIONS
A. Restrictions Upon Grant of Common Stock -- The listing upon the New
York Stock Exchange, or any other stock exchange, or the registration or
qualification under any federal or state law of any shares of Common Stock that
may be subject to grants or awards pursuant to the Plan may be necessary or
desirable as a condition of, or in connection with, such grant or award and, in
any such event, delivery of the certificates for such shares of Common Stock
shall, if the Board, in its sole discretion, shall determine, not be made until
such listing, registration or qualification shall have been completed.
B. Restrictions Upon Resale of Unregistered Stock -- If the issuances
of the shares of Common Stock that have been subject to a grant or award to a
participating Director pursuant to the terms of the Plan are not registered
under the Securities Act of 1933, as amended (the "Act"), pursuant to an
effective registration statement, such Director, if the Board shall deem it
advisable, may be required to represent and agree in writing:
(i) that any shares of Common Stock acquired by such Director
pursuant to the Plan will not be sold, except pursuant to an effective
registration statement under the Act or pursuant to an exemption from
registration under the Act, and
(ii) that such Director is acquiring such shares of Common Stock
for his own account and not with a view to the distribution thereof.
SECTION IX
ADJUSTMENT
The number of shares of Common Stock of the Company reserved for grants
under the Plan, the maximum number of shares specified in Paragraph A of Section
VI, the number of shares of Common Stock covered by outstanding Option Rights,
and the Option Price and kind of shares specified therein, shall be subject to
adjustment by the Board to reflect any stock split, stock dividend,
recapitalization, merger, consolidation, reorganization, combination or exchange
of shares or similar event.
SECTION X
MISCELLANEOUS PROVISIONS
A. Nothing in the Plan shall be construed to give any Director of the
Company any right to a grant of Common Stock or award of Option Rights under the
Plan unless all conditions described within the Plan are met as determined in
the sole discretion of the Board.
B. Neither the Plan, nor the granting of Common Stock or award of
Option Rights nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Company will retain a Director for any period of time. Nothing in the Plan shall
in any manner be construed to limit in any way the right of the Company or its
stockholders to reelect or not reelect or renominate or not renominate a
participating Director.
C. Any shares of Common Stock of the Company issued as a stock
dividend, or as a result of stock splits, combinations, exchanges of shares,
reorganizations, mergers, consolidations or otherwise with respect to shares of
Common Stock granted pursuant to Section IV of the Plan shall have the same
status and be subject to the same restrictions as the shares granted.
D. The costs and expenses of administering the Plan shall be borne by
the Company and not charged to any grant of Common Stock or Option Right nor to
any participating Director.
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E. The Company may make such provisions and take such steps as it may
deem necessary or appropriate for the withholding of any taxes which the Company
is required by any law or regulation of any governmental authority, whether
federal, state or local, to withhold in connection with any event or action
under the Plan.
SECTION XI
AMENDMENT
The Board may suspend or terminate the Plan at any time. In addition,
the Board may, from time to time, amend the Plan in any manner; provided
however, that the Board shall not amend Paragraph B of Section III to increase
the total number of shares of Common Stock that may be granted under the Plan
without the approval of the Company's stockholders. Notwithstanding the
foregoing (i) an adjustment increasing the total number of shares of Common
Stock reserved for grants under the Plan pursuant to Section IX shall not
require stockholder approval, and (ii) the suspension, termination or amendment
of the Plan shall not, without the consent of any participant involved,
adversely affect rights under a previous grant of Common Stock or Option Rights.
SECTION XII
GOVERNING LAW
The Plan and all determinations made and actions taken pursuant thereto
shall be governed by the laws of the State of Texas and construed accordingly.
SECTION XIII
APPROVAL BY STOCKHOLDERS
The Plan was approved by the stockholders of the Company on May 22,
1998.
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EXHIBIT 10.2
AVIALL, INC.
1998 STOCK INCENTIVE PLAN
1. PURPOSE. The purpose of the Aviall, Inc. 1998 Stock Incentive Plan
is to attract and retain officers and other key employees for Aviall, Inc., a
Delaware corporation and its Subsidiaries and to provide to such persons
incentives and rewards for superior performance.
2. DEFINITIONS. As used in this Plan:
"Appreciation Right" means a right granted pursuant to Section 5 of
this Plan, and shall include both Tandem Appreciation Rights and Free-Standing
Appreciation Rights.
"Base Price" means the price to be used as the basis for determining
the Spread upon the exercise of a FreeStanding Appreciation Right and a Tandem
Appreciation Right.
"Board" means the Board of Directors of the Company and, to the extent
of any delegation by the Board to a committee (or subcommittee thereof) pursuant
to Section 15 of this Plan, such committee (or subcommittee).
"Change in Control" shall have the meaning provided in Section 11 of
this Plan.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Common Shares" means the shares of Common Stock, par value $.01 per
share, of the Company or any security into which such Common Shares may be
changed by reason of any transaction or event of the type referred to in Section
10 of this Plan.
"Company" means Aviall, Inc., a Delaware corporation.
"Covered Employee" means a Participant who is, or is determined by the
Board to be likely to become, a "covered employee" within the meaning of Section
162(m) of the Code (or any successor provision).
"Date of Grant" means the date specified by the Board on which a grant
of Option Rights, Appreciation Rights, Performance Shares or Performance Units
or a grant or sale of Restricted Shares or Deferred Shares shall become
effective (which date shall not be earlier than the date on which the Board
takes action with respect thereto).
"Deferral Period" means the period of time during which Deferred Shares
are subject to deferral limitations under Section 7 of this Plan.
"Deferred Shares" means an award made pursuant to Section 7 of this
Plan of the right to receive Common Shares at the end of a specified Deferral
Period.
"Director" means a member of the Board of Directors of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder, as such statute, rules and regulations
may be amended from time to time.
"Free-Standing Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is not granted in tandem with an Option
Right.
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"Immediate Family" has the meaning ascribed thereto in Rule 16a-1(e)
under the Exchange Act (or any successor rule to the same effect) as in effect
from time to time.
"Incentive Stock Options" means Option Rights that are intended to
qualify as "incentive stock options" under Section 422 of the Code or any
successor provision.
"Management Objectives" means the measurable performance objective or
objectives established pursuant to this Plan for Participants who have received
grants of Performance Shares or Performance Units or, when so determined by the
Board, Option Rights, Appreciation Rights, Restricted Shares and dividend
credits pursuant to this Plan. Management Objectives may be described in terms
of Company-wide objectives or objectives that are related to the performance of
the individual Participant or of the Subsidiary, division, department, region or
function within the Company or Subsidiary in which the Participant is employed.
The Management Objectives may be made relative to the performance of other
corporations. The Management Objectives applicable to any award to a Covered
Employee shall be based on specified levels of or growth in one or more of the
following criteria:
1. cash flow/net assets ratio;
2. debt/capital ratio;
3. return on total capital;
4. return on equity;
5. return on net assets
6. earnings per share;
7. revenue;
8. total return to stockholders;
9. earnings before interest and taxes; and
10. earnings before interest, taxes, depreciation and
amortization.
If the Committee determines that a change in the business, operations,
corporate structure or capital structure of the Company, or the manner in which
it conducts its business, or other events or circumstances render the Management
Objectives unsuitable, the Committee may in its discretion modify such
Management Objectives or the related minimum acceptable level of achievement, in
whole or in part, as the Committee deems appropriate and equitable, except in
the case of a Covered Employee where such action would result in the loss of the
otherwise available exemption of the award under Section 162(m) of the Code. In
such case, the Committee shall not make any modification of the Management
Objectives or minimum acceptable level of achievement.
"Market Value per Share" means, as of any particular date, (i) the
closing sale price per Common Share as reported on the principal exchange on
which Common Shares are then trading, if any, or, if applicable, the NASDAQ
National Market System, on the Date of Grant, or if there are no sales on such
day, on the next preceding trading day during which a sale occurred, or (ii) if
clause (i) does not apply, the fair market value of the Common Shares as
determined by the Board.
"Non-Employee Director" means a Director who is not an employee of the
Company or any Subsidiary.
"Optionee" means the optionee named in an agreement evidencing an
outstanding Option Right.
"Option Price" means the purchase price payable on exercise of an
Option Right.
"Option Right" means the right to purchase Common Shares upon exercise
of an option granted pursuant to Section 4 of this Plan.
"Participant" means a person who is selected by the Board to receive
benefits under this Plan and who is at the time an officer, or other key
employee of the Company or any one or more of its Subsidiaries, or who has
agreed to commence serving in any of such capacities within 90 days of the Date
of Grant.
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"Performance Period" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of this
Plan within which the Management Objectives relating to such Performance Share
or Performance Unit are to be achieved.
"Performance Share" means a bookkeeping entry that records the
equivalent of one Common Share awarded pursuant to Section 8 of this Plan.
"Performance Unit" means a bookkeeping entry that records a unit
equivalent to $1.00 awarded pursuant to Section 8 of this Plan.
"Plan" means this Aviall, Inc. 1998 Stock Incentive Plan.
"Restricted Shares" means Common Shares granted or sold pursuant to
Section 6 of this Plan as to which neither the substantial risk of forfeiture
nor the prohibition on transfers referred to in such Section 6 has expired.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act (or any successor
rule to the same effect) as in effect from time to time.
"Spread" means the excess of the Market Value per Share on the date
when an Appreciation Right is exercised, or on the date when Option Rights are
surrendered in payment of the Option Price of other Option Rights, over the
Option Price or Base Price provided for in the related Option Right or
Free-Standing Appreciation Right, respectively.
"Subsidiary" means a corporation, company or other entity (i) more than
50 percent of whose outstanding shares or securities (representing the right to
vote generally in the election of directors or other managing authority) are, or
(ii) which does not have outstanding shares or securities (as may be the case in
a partnership, joint venture or unincorporated association), but more than 50
percent of whose ownership interest representing the right generally to make
decisions for such other entity is, now or hereafter, owned or controlled,
directly or indirectly, by the Company except that for purposes of determining
whether any person may be a Participant for purposes of any grant of Incentive
Stock Options, "Subsidiary" means any corporation in which at the time the
Company owns or controls, directly or indirectly, more than 50 percent of the
total combined voting power represented by all classes of stock issued by such
corporation.
"Tandem Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is granted in tandem with an Option
Right.
"Voting Power" means at any time, the total votes relating to the
then-outstanding securities entitled to vote generally in the election of
Directors.
3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as
provided in Section 3(b) and Section 10 of this Plan, the number of Common
Shares that may be issued or transferred (i) upon the exercise of Option Rights
or Appreciation Rights, (ii) as Restricted Shares and released from substantial
risks of forfeiture thereof, (iii) as Deferred Shares, (iv) in payment of
Performance Shares or Performance Units that have been earned, or (v) in payment
of dividend equivalents paid with respect to awards made under the Plan shall
not exceed in the aggregate 940,000 Common Shares, plus any shares described in
Section 3(b). Such shares may be shares of original issuance or treasury shares
or a combination of the foregoing.
(b) The number of Common Shares available in Section 3(a) above shall
be adjusted to account for Common Shares relating to awards that expire, are
forfeited or are transferred, surrendered or relinquished upon the payment of
any Option Price by the transfer to the Company of Common Shares or upon
satisfaction of any withholding amount. Upon payment in cash of the benefit
provided by any award granted under this Plan, any shares that were covered by
that award shall again be available for issue or transfer hereunder.
(c) Notwithstanding anything in this Section 3, or elsewhere in this
Plan, to the contrary and subject to adjustment as provided in Section 10 of
this Plan, (i) the aggregate number of Common Shares actually issued or
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transferred by the Company upon the exercise of Incentive Stock Options shall
not exceed 940,000 Common Shares, and (ii) no Participant shall be granted
Option Rights and Appreciation Rights, in the aggregate, for more than 300,000
Common Shares during any year.
(d) Notwithstanding any other provision of this Plan to the contrary,
in no event shall any Participant in any calendar year receive an award of
Performance Shares or Performance Units having an aggregate maximum value as of
their respective Dates of Grant in excess of $400,000.
4. OPTION RIGHTS. The Board may, from time to time and upon such terms
and conditions as it may determine, authorize the granting to Participants of
options to purchase Common Shares. Each such grant may utilize any or all of the
authorizations, and shall be subject to all of the requirements contained in the
following provisions:
(a) Each grant shall specify the number of Common Shares to which it
pertains subject to the limitations set forth in Section 3 of this plan.
(b) Each grant shall specify an Option Price per share, which may not
be less than the Market Value per Share on the Date of Grant.
(c) Each grant shall specify whether the Option Price shall be payable
(i) in cash or by check acceptable to the Company, (ii) by the actual or
constructive transfer to the Company of Common Shares owned by the Optionee for
at least 6 months (or other consideration authorized pursuant to Section 4(d))
having a value at the time of exercise equal to the total Option Price, or (iii)
by a combination of such methods of payment.
(d) The Board may determine, at or after the Date of Grant, that
payment of the Option Price of any Option Right (other than an Incentive Stock
Option) may also be made in whole or in part in the form of Restricted Shares or
other Common Shares that are forfeitable or subject to restrictions on transfer,
Deferred Shares, Performance Shares (based, in each case, on the Market Value
per Share on the date of exercise), other Option Rights (based on the Spread on
the date of exercise) or Performance Units. Unless otherwise determined by the
Board at or after the Date of Grant, whenever any Option Price is paid in whole
or in part by means of any of the forms of consideration specified in this
Section 4(d), the Common Shares received upon the exercise of the Option Rights
shall be subject to such risks of forfeiture or restrictions on transfer as may
correspond to any that apply to the consideration surrendered, but only to the
extent, determined with respect to the consideration surrendered, of (i) the
number of shares or Performance Shares, (ii) the Spread of any unexercisable
portion of Option Rights, or (iii) the stated value of Performance Units.
(e) Any grant may provide for deferred payment of the Option Price from
the proceeds of sale through a bank or broker on a date satisfactory to the
Company of some or all of the shares to which such exercise relates.
(f) Successive grants may be made to the same Participant whether or
not any Option Rights previously granted to such Participant remain unexercised.
(g) Each grant shall specify the period or periods of continuous
service by the Optionee with the Company or any Subsidiary that is necessary
before the Option Rights or installments thereof will become exercisable and may
provide for the earlier exercise of such Option Rights in the event of a Change
in Control.
(h) Any grant of Option Rights may specify Management Objectives that
must be achieved as a condition to the exercise of such rights.
(i) Option Rights granted under this Plan may be (i) options,
including, without limitation, Incentive Stock Options, that are intended to
qualify under particular provisions of the Code, (ii) options that are not
intended so to qualify, or (iii) combinations of the foregoing.
(j) The Board may, at or after the Date of Grant of any Option Rights
(other than Incentive Stock Options), provide for the payment of dividend
equivalents to the Optionee on either a current or deferred or contingent basis
or may provide that such equivalents shall be credited against the Option Price.
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(k) The exercise of an Option Right shall result in the cancellation on
a share-for-share basis of any Tandem Appreciation Right authorized under
Section 5 of this Plan.
(l) No Option Right shall be exercisable more than 10 years from the
Date of Grant.
(m) Each grant of Option Rights shall be evidenced by an agreement
executed on behalf of the Company by an officer and delivered to the Optionee
and containing such terms and provisions, consistent with this Plan, as the
Board may approve.
5. APPRECIATION RIGHTS. (a) The Board may authorize the granting (i) to
any Optionee, of Tandem Appreciation Rights in respect of Option Rights granted
hereunder, and (ii) to any Participant, of Free-Standing Appreciation Rights. A
Tandem Appreciation Right shall be a right of the Optionee, exercisable by
surrender of the related Option Right, to receive from the Company an amount
determined by the Board, which shall be expressed as a percentage of the Spread
(not exceeding 100 percent) at the time of exercise. Tandem Appreciation Rights
may be granted at any time prior to the exercise or termination of the related
Option Rights; provided, however, that a Tandem Appreciation Right awarded in
relation to an Incentive Stock Option must be granted concurrently with such
Incentive Stock Option. A Free-Standing Appreciation Right shall be a right of
the Participant to receive from the Company an amount determined by the Board,
which shall be expressed as a percentage of the Spread (not exceeding 100
percent) at the time of exercise.
(b) Each grant of Appreciation Rights may utilize any or all of the
authorizations, and shall be subject to all of the requirements, contained in
the following provisions:
(i) Any grant may specify that the amount payable on exercise of
an Appreciation Right may be paid by the Company in cash, in Common Shares or in
any combination thereof and may either grant to the Participant or retain in the
Board the right to elect among those alternatives.
(ii) Any grant may specify that the amount payable on exercise of
an Appreciation Right may not exceed a maximum specified by the Board at the
Date of Grant.
(iii) Any grant may specify waiting periods before exercise and
permissible exercise dates or periods.
(iv) Any grant may specify that such Appreciation Right may be
exercised only in the event of, or earlier in the event of, a Change in Control.
(v) Any grant may provide for the payment to the Participant of
dividend equivalents thereon in cash or Common Shares on a current, deferred or
contingent basis.
(vi) Any grant of Appreciation Rights may specify Management
Objectives that must be achieved as a condition of the exercise of such Rights.
(vii) Each grant of Appreciation Rights shall be evidenced by an
agreement executed on behalf of the Company by an officer and delivered to and
accepted by the Participant, which agreement shall describe such Appreciation
Rights, identify the related Option Rights (if applicable), state that such
Appreciation Rights are subject to all the terms and conditions of this Plan,
and contain such other terms and provisions, consistent with this Plan, as the
Board may approve.
(c) Any grant of Tandem Appreciation Rights shall provide that such
Rights may be exercised only at a time when the related Option Right is also
exercisable and at a time when the Spread is positive, and by surrender of the
related Option Right for cancellation.
(d) Regarding Free-standing Appreciation Rights only:
(i) Each grant shall specify in respect of each Free-standing
Appreciation Right a Base Price, which shall be equal to or greater or less than
the Market Value per Share on the Date of Grant;
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(ii) Successive grants may be made to the same Participant
regardless of whether any Free-standing Appreciation Rights previously granted
to the Participant remain unexercised; and
(iii) No Free-standing Appreciation Right granted under this Plan
may be exercised more than 10 years from the Date of Grant.
6. RESTRICTED SHARES. The Board may also authorize the grant or sale of
Restricted Shares to Participants. Each such grant or sale may utilize any or
all of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate transfer of
the ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to voting, dividend and
other ownership rights, but subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall provide that the Restricted Shares
covered by such grant or sale shall be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code for a period of not
less than one year to be determined by the Board at the Date of Grant, and may
provide for the earlier lapse of such substantial risk of forfeiture in the
event of a Change in Control.
(d) Each such grant or sale shall provide that during the period for
which such substantial risk of forfeiture is to continue, the transferability of
the Restricted Shares shall be prohibited or restricted in the manner and to the
extent prescribed by the Board at the Date of Grant (which restrictions may
include, without limitation, rights of repurchase or first refusal in the
Company or provisions subjecting the Restricted Shares to a continuing
substantial risk of forfeiture in the hands of any transferee).
(e) Any grant of Restricted Shares may specify Management Objectives
that, if achieved, will result in termination or early termination of the
restrictions applicable to such shares. Each grant may specify in respect of
such Management Objectives a minimum acceptable level of achievement and may set
forth a formula for determining the number of Restricted Shares on which
restrictions will terminate if performance is at or above the minimum level, but
falls short of full achievement of the specified Management Objectives.
(f) Any such grant or sale of Restricted Shares may require that any or
all dividends or other distributions paid thereon during the period of such
restrictions be automatically deferred and reinvested in additional Restricted
Shares, which may be Subject to the same restrictions as the underlying award.
(g) Each grant or sale of Restricted Shares shall be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to and
accepted by the Participant and shall contain such terms and provisions,
consistent with this Plan, as the Board may approve. Unless otherwise directed
by the Board, all certificates representing Restricted Shares shall be held in
custody by the Company until all restrictions thereon shall have lapsed,
together with a stock power or powers executed by the Participant in whose name
such certificates are registered, endorsed in blank and covering such Shares.
7. DEFERRED SHARES. The Board may also authorize the granting or sale
of Deferred Shares to Participants. Each such grant or sale may utilize any or
all of the authorizations, and shall be subject to all of the requirements
contained in the following provisions:
(a) Each such grant or sale shall constitute the agreement by the
Company to deliver Common Shares to the Participant in the future in
consideration of the performance of services, but subject to the fulfillment of
such conditions during the Deferral Period as the Board may specify.
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(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than the Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall be subject to a Deferral Period of
not less than one year, as determined by the Board at the Date of Grant, and may
provide for the earlier lapse or other modification of such Deferral Period in
the event of a Change in Control.
(d) During the Deferral Period, the Participant shall have no right to
transfer any rights under his or her award and shall have no rights of ownership
in the Deferred Shares and shall have no right to vote them, but the Board may,
at or after the Date of Grant, authorize the payment of dividend equivalents on
such Shares on either a current or deferred or contingent basis, either in cash
or in additional Common Shares.
(e) Each grant or sale of Deferred Shares shall be evidenced by an
agreement executed on behalf of the Company by any officer and delivered to and
accepted by the Participant and shall contain such terms and provisions,
consistent with this Plan, as the Board may approve.
8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Board may also
authorize the granting of Performance Shares and Performance Units that will
become payable to a Participant upon achievement of specified Management
Objectives. Each such grant may utilize any or all of the authorizations, and
shall be subject to all of the requirements, contained in the following
provisions:
(a) Each grant shall specify the number of Performance Shares or
Performance Units to which it pertains, which number may be subject to
adjustment to reflect changes in compensation or other factors; provided,
however, that no such adjustment shall be made in the case of a Covered Employee
where such action would result in the loss of the otherwise available exemption
of the award under Section 162(m) of the Code.
(b) The Performance Period with respect to each Performance Share or
Performance Unit shall be such period of time (not less than one year),
commencing with the Date of Grant, as shall be determined by the Board at the
time of grant, which may be subject to earlier lapse or other modification in
the event of a Change in Control as set forth in the agreement specified in
Section 8(g).
(c) Any grant of Performance Shares or Performance Units shall specify
Management Objectives which, if achieved, will result in payment or early
payment of the award, and each grant may specify in respect of such specified
Management Objectives a minimum acceptable level of achievement and shall set
forth a formula for determining the number of Performance Shares or Performance
Units that will be earned if performance is at or above the minimum level, but
falls short of full achievement of the specified Management Objectives. The
grant of Performance Shares or Performance Units shall specify that, before the
Performance Shares or Performance Units shall be earned and paid, the Board must
certify that the Management Objectives have been satisfied.
(d) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units that have been earned. Any grant may
specify that the amount payable with respect thereto may be paid by the Company
in cash, in Common Shares or in any combination thereof and may either grant to
the Participant or retain in the Board the right to elect among those
alternatives.
(e) Any grant of Performance Shares may specify that the amount payable
with respect thereto may not exceed a maximum specified by the Board at the Date
of Grant. Any grant of Performance Units may specify that the amount payable or
the number of Common Shares issued with respect thereto may not exceed maximums
specified by the Board at the Date of Grant.
(f) The Board may, at or after the Date of Grant of Performance Shares,
provide for the payment of dividend equivalents to the holder thereof on either
a current or deferred or contingent basis, either in cash or in additional
Common Shares.
(g) Each grant of Performance Shares or Performance Units shall be
evidenced by an agreement executed on behalf of the Company by any officer and
delivered to and accepted by the Participant, which agreement shall state
7
<PAGE> 8
that such Performance Shares or Performance Units are subject to all the terms
and conditions of this Plan, and contain such other terms and provisions,
consistent with this Plan, as the Board may approve.
9. TRANSFERABILITY. (a) No Option Right, Appreciation Right or other
derivative security granted under the Plan shall be transferable by a
Participant other than by will or the laws of descent and distribution. Except
as otherwise determined by the Board, Option Rights and Appreciation Rights
shall be exercisable during the Optionee's lifetime only by him or her or by his
or her guardian or legal representative.
(b) The Board may specify at the Date of Grant that part or all of the
Common Shares that are (i) to be issued or transferred by the Company upon the
exercise of Option Rights or Appreciation Rights, upon the termination of the
Deferral Period applicable to Deferred Shares or upon payment under any grant of
Performance Shares or Performance Units or (ii) no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in
Section 6 of this Plan, shall be subject to further restrictions on transfer.
(c) Notwithstanding the provisions of Section 9(a), Option Rights
(other than Incentive Stock Options), Appreciation Rights, Restricted Shares,
Deferred Shares, Performance Shares and Performance Units shall be transferable
by a Participant, without payment of consideration therefor by the transferee,
to any one or more members of the Participant's Immediate Family (or to one or
more trusts established solely for the benefit of one or more members of the
Participant's Immediate Family or to one or more partnerships in which the only
partners are members of the Participant's Immediate Family); provided, however,
that (i) no such transfer shall be effective unless reasonable prior notice
thereof is delivered to the Company and such transfer is thereafter effected in
accordance with any terms and conditions that shall have been made applicable
thereto by the Company or the Board and (ii) any such transferee shall be
subject to the same terms and conditions hereunder as the Participant.
10. ADJUSTMENTS. The Board may make or provide for such adjustments in
the numbers of Common Shares covered by outstanding Option Rights, Appreciation
Rights, Deferred Shares, and Performance Shares granted hereunder, in the Option
Price and Base Price provided in outstanding Appreciation Rights, and in the
kind of shares covered thereby, as the Board, in its sole discretion, exercised
in good faith, may determine is equitably required to prevent dilution or
enlargement of the rights of Participants or Optionees that otherwise would
result from (a) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, or (b)
any merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation or other distribution of assets,
issuance of rights or warrants to purchase securities, or (c) any other
corporate transaction or event having an effect similar to any of the foregoing.
Moreover, in the event of any such transaction or event, the Board, in its
discretion, may provide in substitution for any or all outstanding awards under
this Plan such alternative consideration as it, in good faith, may determine to
be equitable in the circumstances and may require in connection therewith the
surrender of all awards so replaced. The Board may also make or provide for such
adjustments in the numbers of shares specified in Section 3 of this Plan as the
Board in its sole discretion, exercised in good faith, may determine is
appropriate to reflect any transaction or event described in this Section 10;
provided, however, that any such adjustment to the number specified in Section
3(c)(i) shall be made only if and to the extent that such adjustment would not
cause any Option intended to qualify as an Incentive Stock Option to fail so to
qualify.
11. CHANGE IN CONTROL. For purposes of this Plan, except as may be
otherwise prescribed by the Board in an agreement evidencing a grant or award
made under the Plan, a "Change in Control" shall mean if at any time any of the
following events shall have occurred:
(a) The Company is merged or consolidated or reorganized into or with
another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
securities entitled to vote generally in the election of Directors immediately
prior to such transaction;
(b) The Company sells or otherwise transfers all or substantially all
of its assets to any other corporation or other legal person, and less than a
majority of the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer is held in the
aggregate by the holders of Common Shares immediately prior to such sale or
transfer;
8
<PAGE> 9
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of
securities representing 20% or more of the Voting Power;
(d) The Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response to
Form 8-K or Schedule 14A (or any successor schedule, form or report or item
therein) that a change in control of the Company has or may have occurred or
will or may occur in the future pursuant to any then-existing contract or
transaction; or
(e) If during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Directors cease for any reason
to constitute at least a majority thereof, unless the election, or the
nomination for election by the Company's stockholders, of each Director first
elected during such period was approved by a vote of at least two-thirds of the
Directors then still in office who were Directors at the beginning of any such
period.
Notwithstanding the foregoing provisions of Sections 11(c) and (d)
above, a "Change in Control" shall not be deemed to have occurred for purposes
of this Plan (i) solely because (A) the Company; (B) a Subsidiary; or (C) any
Company-sponsored employee stock ownership plan or other employee benefit plan
of the Company either files or becomes obligated to file a report or proxy
statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein) under
the Exchange Act, disclosing beneficial ownership by it of shares, whether in
excess of 20% of the Voting Power or otherwise, or because the Company reports
that a change of control of the Company has or may have occurred or will or may
occur in the future by reason of such beneficial ownership or (ii) solely
because of a change in control of any Subsidiary.
12. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may provide for the
elimination of fractions or for the settlement of fractions in cash.
13. WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
shall be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory
to the Company for payment of the balance of such taxes required to be withheld,
which arrangements (in the discretion of the Board) may include relinquishment
of a portion of such benefit. The Company and a Participant or such other person
may also make similar arrangements with respect to the payment of any taxes with
respect to which withholding is not required.
14. FOREIGN EMPLOYEES. In order to facilitate the making of any grant
or combination of grants under this Plan, the Board may provide for such special
terms for awards to Participants who are foreign nationals or who are employed
by the Company or any Subsidiary outside of the United States of America as the
Board may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. Moreover, the Board may approve such supplements to
or amendments, restatements or alternative versions of this Plan as it may
consider necessary or appropriate for such purposes, without thereby affecting
the terms of this Plan as in effect for any other purpose, and the Secretary or
other appropriate officer of the Company may certify any such document as having
been approved and adopted in the same manner as this Plan. No such special
terms, supplements, amendments or restatements, however, shall include any
provisions that are inconsistent with the terms of this Plan as then in effect
unless this Plan could have been amended to eliminate such inconsistency without
further approval by the stockholders of the Company.
15. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered by
the Board, which may from time to time delegate all or any part of its authority
under this Plan to a committee of the Board (or subcommittee thereof) consisting
of not less than two Non-Employee Directors appointed by the Board. A majority
of the committee (or subcommittee) shall constitute a quorum, and the action of
the members of the committee (or subcommittee) present at any meeting at which a
quorum is present, or acts unanimously approved in writing, shall be the acts of
the
9
<PAGE> 10
committee (or subcommittee). To the extent of any such delegation, references in
this Plan to the Board shall be deemed to be references to any such committee or
subcommittee.
(b) The interpretation and construction by the Board of any provision
of this Plan or of any agreement, notification or document evidencing the grant
of Option Rights, Appreciation Rights, Restricted Shares, Deferred Shares,
Performance Shares or Performance Units and any determination by the Board
pursuant to any provision of this Plan or of any such agreement, notification or
document shall be final and conclusive. No member of the Board shall be liable
for any such action or determination made in good faith.
16. AMENDMENTS, ETC. (a) The Board may at any time and from time to
time amend the Plan in whole or in part; provided, however, that any amendment
which must be approved by the stockholders of the Company in order to comply
with applicable law or the rules of the New York Stock Exchange or, if the
Common Shares are not traded on New York Stock Exchange, the principal national
securities exchange upon which the Common Shares are traded or quoted, shall not
be effective unless and until such approval has been obtained. Presentation of
this Plan or any amendment hereof for stockholder approval shall not be
construed to limit the Company's authority to offer similar or dissimilar
benefits under other plans without stockholder approval.
(b) The Board also may permit Participants to elect to defer the
issuance of Common Shares or the settlement of awards in cash under the Plan
pursuant to such rules, procedures or programs as it may establish for purposes
of this Plan. The Board also may provide that deferred issuances and settlements
include the payment or crediting of dividend equivalents or interest on the
deferral amounts.
(c) The Board may condition the grant of any award or combination of
awards authorized under this Plan on the surrender or deferral by the
Participant of his or her right to receive a cash bonus or other compensation
otherwise payable by the Company or a Subsidiary to the Participant.
(d) In case of termination of employment by reason of death, disability
or normal or early retirement, or in the case of hardship or other special
circumstances, of a Participant who holds an Option Right or Appreciation Right
not immediately exercisable in full, or any Restricted Shares as to which the
substantial risk of forfeiture or the prohibition or restriction on transfer has
not lapsed, or any Deferred Shares as to which the Deferral Period has not been
completed, or any Performance Shares or Performance Units which have not been
fully earned, or who holds Common Shares subject to any transfer restriction
imposed pursuant to Section 9(b) of this Plan, the Board may, in its sole
discretion, accelerate the time at which such Option Right or Appreciation Right
may be exercised or the time at which such substantial risk of forfeiture or
prohibition or restriction on transfer will lapse or the time when such Deferral
Period will end or the time at which such Performance Shares or Performance
Units will be deemed to have been fully earned or the time when such transfer
restriction will terminate or may waive any other limitation or requirement
under any such award.
(e) This Plan shall not confer upon any Participant any right with
respect to continuance of employment or other service with the Company or any
Subsidiary, nor shall it interfere in any way with any right the Company or any
Subsidiary would otherwise have to terminate such Participant's employment or
other service at any time.
(f) To the extent that any provision of this Plan would prevent any
Option Right that was intended to qualify as an Incentive Stock Option from
qualifying as such, that provision shall be null and void with respect to such
Option Right. Such provision, however, shall remain in effect for other Option
Rights and there shall be no further effect on any provision of this Plan.
17. TERMINATION. No grant shall be made under this Plan more than 10
years after the date on which this Plan is first approved by the stockholders of
the Company, but all grants made on or prior to such date shall continue in
effect thereafter subject to the terms thereof and of this Plan.
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AVIALL,
INC.'S SECOND QUARTER 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH SECOND QUARTER 1998 FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,089
<SECURITIES> 0
<RECEIVABLES> 68,279
<ALLOWANCES> 4,184
<INVENTORY> 80,848
<CURRENT-ASSETS> 160,375
<PP&E> 38,910
<DEPRECIATION> 28,582
<TOTAL-ASSETS> 265,699
<CURRENT-LIABILITIES> 82,708
<BONDS> 24,000
0
0
<COMMON> 201
<OTHER-SE> 132,421
<TOTAL-LIABILITY-AND-EQUITY> 265,699
<SALES> 202,979
<TOTAL-REVENUES> 202,979
<CGS> 151,960
<TOTAL-COSTS> 151,960
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,083
<INCOME-PRETAX> 15,268
<INCOME-TAX> 461
<INCOME-CONTINUING> 14,807
<DISCONTINUED> 2,083
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,890
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.83
</TABLE>
